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Summary

The Taxpayer, Health Service Pty Ltd (“Health Service”), sought a review of payroll tax assessments issued by the Chief Commissioner of State Revenue (“the Chief Commissioner”) for the tax years ending 30 June 2010 to 30 June 2012 and for the period 1 July 2012 to 30 March 2013.

The Tribunal set aside the assessments on the basis that an exemption under the employment agency provisions applied. The Tribunal held that Health Services procured service providers under employment agency contracts, for clients that were exempt from payroll tax, and the clients had provided declarations to that effect. The Tribunal held that the employment agency provisions in Part 3, Division 8 were an exclusive code, and the exemption applied whether the service providers were engaged by Health Services under contracts of employment or relevant contracts.

Background

The parties filed a Statement of Agreed Facts in the matter, the material facts being:

Health Service is in the business of providing home based aged and disability care services (“Services”) to, amongst other organisations, non-profit organisations as defined in s.48(1)(c) of the Payroll Tax Act 2007 (“PRTA”) (the “Relevant Clients”).

Health Service enters into contracts with the Relevant Clients and is remunerated by the Relevant Clients for the provision of the Services.

Health Service enters into contracts of employment with workers. The workers perform the Services required to be carried out under the contracts between Health Service and the Relevant Clients.

Health Service invoices the Relevant Clients for the Services provided by it, and the Relevant Clients pay Health Service for those Services.

Health Service remunerates the workers under its contracts of employment with the workers.

The Relevant Clients were exempt from payroll tax pursuant to Part 4 of the PRTA (but not under Div. 4 or 5 of that Part, s. 50 or cl.5 Sch.2).

The Relevant Clients had provided declarations to Health Service pursuant to s.40(2).

Issues

The key issues for determination by the Tribunal were:

whether Pt 3 Div 8 of the PRTA (Employment agents) applies to the wages paid by Health Service to the workers where the workers are the common law employees of Health Service;

whether the contracts between Health Service and the Relevant Clients constitute “employment agency contracts” under s.37(1);

whether the wages paid by Health Service to the workers are exempt from payroll tax under s.40(2).

Decision

The Tribunal held that Division 8 deals exhaustively with the payroll tax consequences in relation to an employment agency contract: [59]. Further, it was held that there is nothing in the provisions to suggest that its application is confined to persons other than an employer in a common law relationship with the worker: [60].

SM Verick was not persuaded that the decision of the Victorian Court of Appeal in Drake Personnel Ltd v Commissioner of State Revenue [2000] VSCA 122 (“Drake”) was authority for the proposition that there was no need to resort to the extended meaning of “employer” where liability to payroll tax already exists based on the employer-employee relationship between the agent and the worker. He noted that the parties in Drake did not raise any issue before the Court of Appeal as to the exclusive operation of the employment agency contract provisions; and that lack of serious discussion on the issue meant that the decision of the Court of Appeal does not offer a conclusive view: [34] - [37].

The Chief Commissioner argued that comments by Santow JA in Moore Park Gardens Management Ltd v Chief Commissioner of State Revenue [2006] NSWCA 115 to the effect that the (former) employment agency contract provisions were a self-contained regime exhaustively governing the liability to payroll tax of employment agents, were obiter. However, SM Verick considered that his Honour’s comments at [79] – [81] were “strong dictum although said by way of obiter”: [44].

The Tribunal also relied on the following reasoning:

the term “employment agent” applies to any person who enters into an employment agency contract as defined; therefore it does not matter if the person is a common law employer or not: [48];

statements made by his Honour White J in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 at [149] – [151], to the effect that the legislation would not have defined “employment agent” in the way it is defined in the PRTA if the provision was only intended to apply to a narrow category of employment agents or labour hire firms: [49];

the Chief Commissioner’s construction of the legislation would result in the concessions in s.40(2) applying only to a person who engaged workers other than as common law employees, which would produce a harsh, inequitable outcome, and two different regimes to deal with employment agents: [51];

historically, the definition of an employment agent was limited to arrangements where the worker does not become the employee of either the agent or the client [54]; by contrast, the only arrangement excluded from the definition of “employment agency contract” under the current s.37(2) is one that is, or results in the creation of, a contract of employment between the service provider and the client: [56].

The Chief Commissioner submitted that Health Service does not procure the services of another person because it directs its own employees to do the work that it has contracted with the Relevant Clients to do.

Having considered the analysis by the his Honour Justice White in Freelance Global as to whether the plaintiff had “procured the services” of the contractors for its clients, the Tribunal formed the view that the agreements between Health Service and the Relevant Clients fall within the definition of “employment agency contract” in s.37. SM Verick stated at [70]:

“I think the wide definition of “procures” extends to a person procuring workers as employees to perform the contracted work...They [the employees] performed no services for the Taxpayer but were available to perform services as and when required as contract personnel under an employment agency contract entered into by the Taxpayer with a client. I accept that the agreements between the Taxpayer and individual worker were clearly arrangements to procure contract workers for the client.”

Issue 3 – Whether wages paid to employees were exempt under s.40(2)

The Chief Commissioner submitted that even if s.37 is engaged by the present facts, this would lead to the same conclusion that the employment agent is liable to pay payroll tax based on the employer-employee relationship with the worker. The reasoning was that if s.40(2) operates so as to preclude the deeming of wages by s.40(1) (on the assumption that the payment would have been exempt if paid by the client to the worker as its employee), there is no amount that is taken to be wages. One must then return to the situation of there being an employer-employee relationship which of itself will render Health Service liable for payroll tax on the payments made to its employees.

However, the Tribunal determined that Division 8 is an exhaustive regime for employment agency contracts, and did not address this issue. Rather, it concluded that since there was an “employment agency contract” then Health Service “is entitled to the exemption under s.40(2)”: [71].